Scott Edward Walker

APRIL 9, 2012

Introduction We are in the golden age of seed financing. Venture capital funds, seed funds, super angels, angel groups, incubators, and “friends and family” are all playing the seed financing game and investing early in startups in an attempt to land the next Facebook. Why Can’t a Startup Issue Shares of Common Stock to Investors?

Preferred Stock 87

Preferred Stock Finance Common Stock Liquidation Preference 87

ithacaVC

DECEMBER 13, 2013

There are many reasons for this, but fundamentally, it is impossible to calculate a share price for the investment round unless you have complete agreement on how many shares are outstanding pre-money. The share price is calculated by taking the pre-money valuation and dividing it by the number of shares outstanding pre-money.

Cap Table 67

Cap Table Pre-Money Valuation Option Pool Liquidation Preference 67

Tim Keane

JANUARY 12, 2010

For angel groups, the distinction between groups and VCs on this issue is dwindling, especially as angel groups do bigger rounds of financing.   You can vary both valuation and term-sheet assumptions (in the gray boxes) to assess the impact on the values of the business. stake in the company. The Consideration of Risk.

Term Sheet 68

Term Sheet Valuation Dividend Liquidation Preference 68

The Startup Lawyer

FEBRUARY 4, 2011

The following are some issues to consider and actions to take before accepting an incubator’s offer: (1) Calculate Valuation and Determine Value. Pre-money valuations startups receive from incubators are typically low…really low. 2) Scrutinize the Investment Structure. Conclusion.

Incubator 105

Incubator Pre-Money Valuation Option Pool Advisory Board 105

Both Sides of the Table

APRIL 14, 2010

Liquidation preference is the amount of money that an investor gets paid before the common stock (e.g. management, founders, angel investors) get any money. But pass they will. Brain damage. Reputation. Your existing investors tell you, “Don’t worry.

Venture Capital 289

Venture Capital Liquidation Preference Common Stock Pre-Money Valuation 289

The Startup Lawyer

JANUARY 10, 2012

In most equity financing rounds, an investor will ask for (and get) a term called a liquidation preference. A liquidation preference is the amount that must be paid to a preferred stock holder before any sale proceeds may be paid to the holders of common stock (i.e., founders, option holders, etc.).

Liquidation Preference 73

Liquidation Preference Pre-Money Valuation Participating Preferred Preferred Stock 73

venturehacks.com

OCTOBER 21, 2010

If you don’t keep your eyes on the option pool while you’re negotiating valuation, your investors will have you playing (and losing) a game that we like to call: Option Pool Shuffle You have successfully negotiated a $2M investment on a $8M pre-money valuation by pitting the famous Blue Shirt Capital against Herd Mentality Management.

Option Pool 68

Option Pool Pre-Money Valuation Dilution Warrant 68

Both Sides of the Table

SEPTEMBER 5, 2012

Was Paul Graham right in his “high resolution” financing post? Some thoughts on raising angel money. As in, “your money into my company will convert at a 15-20% discount to the next round of capital I raise with a maximum price of $8 million pre-money valuation (or whatever the cap was).”

Ratchet 354

Ratchet Liquidation Preference Equity Stock 354

K9 Ventures

MAY 14, 2011

The incubators invest usually for an equity stake and buy equity at a extremely low valuation (for example, 7% for $15,000, which implies a pre-money valuation of less than $200,000). Personal Money. Personal Money. Personal Money AND Limited Partners. Limited Partners, very little Personal Money.

Preferred Stock 125

Preferred Stock Seed Stage Incubator Early Stage 125

Both Sides of the Table

SEPTEMBER 8, 2012

But Paul Graham really did have a point in his “ high resolution fundraising ” post – that there is a problem – particularly in angel financing – with herding cats. We plan to raise at a $5 million pre-money valuation. million pre-money. You can do it with equity & a price.

Pre-Money Valuation 294

Pre-Money Valuation Finance Liquidation Preference Warrant 294

thestartuplawyer.com

FEBRUARY 24, 2010

About the Author Ryan Roberts is a startup lawyer and represents technology companies through all phases of the startup process, including incorporation, seed & venture financings, and exit transactions. He obviously never launched a startup and got shafted by a co-founder. Click here to learn more about his practice.

Cofounder 40

Cofounder Founder Preferred Stock Startup 40